Gold price sits near all-time peak; overbought conditions warrant caution for bulls
- Gold price holds steady just below the record high touched on Wednesday.
- US-China trade war anxiety boosts demand for the safe-haven XAU/USD pair.
- Fed rate cut bets and falling US bond yields also underpin the precious metal.
Gold price (XAU/USD) trades with a mild positive bias during the Asian session on Thursday and remains close to the all-time peak touched the previous day. Investors continue to seek refuge in the traditional safe-haven bullion amid escalating concerns about a US-China trade war and the potential economic fallout from US President Donald Trump's trade tariffs. Furthermore, expectations that the Federal Reserve (Fed) will keep cutting interest rates in 2025 and the recent fall in the US Treasury bond yields further underpin the non-yielding yellow metal.
Bulls, however, take a brief pause for a breather amid slightly overbought conditions and the prevalent risk-on mood, which tends to dent demand for the Gold price. Apart from this, a modest US Dollar (USD) bounce from over a one-week low touched on Wednesday contributes to capping the upside for the commodity. That said, the fundamental backdrop supports prospects for an extension of a well-established uptrend from the December monthly swing low. Traders now look forward to the release of the US Weekly Jobless Claims for short-term impetus.
Gold price continues to attract safe-haven flows amid worries about Trump’s trade tariffs
- US President Donald Trump's new 10% tariffs on Chinese imports came into effect on Tuesday. Furthermore, China announced retaliatory tariffs on some US goods, fueling worries about an escalating trade war and lifting the safe-haven Gold price to a fresh record high on Wednesday.
- The Automatic Data Processing (ADP) reported that private-sector added 183K in January compared to the previous month's upwardly revised reading of 176K. This, however, was offset by the disappointing release of the US ISM Services PMI, which declined to 52.8 in January.
- The US Treasury yields dropped to their lowest level since mid-December in reaction to the softer data. Moreover, expectations the Federal Reserve will lower borrowing costs twice this year drag the US Dollar to over a one-week low and further benefit the non-yielding yellow metal.
- US Treasury Secretary Scott Bessent said late Wednesday, the focus is on bringing down 10-year Treasury yields, rather than the Fed’s benchmark short-term interest rate. Bessent added that interest rates will take care of themselves if we get energy costs down and deregulate the economy.
- The USD bulls failed to gain respite from Fed Vice Chair Philip Jefferson's hawkish remarks on Thursday, saying that he is happy to keep the Fed Funds on hold at the current level. He will wait to see the net effect of US President Donald Trump's policies, Jefferson noted further.
- Investors are looking to the US monthly employment details – popularly known as the Nonfarm Payrolls report – on Friday for further clues on the outlook for rates. In the meantime, traders on Thursday will take cues from the release of the usual US Weekly Initial Jobless Claims data.
Gold price needs to consolidate the recent strong gains before the next leg up
From a technical perspective, the Relative Strength Index (RSI) has moved above the 70 mark and warrants some caution for bullish traders. Hence, it will be prudent to wait for some near-term consolidation or a modest pullback before positioning for any further appreciating move. Nevertheless, the recent breakout through key barriers suggests that the path of least resistance for the Gold price remains to the upside.
In the meantime, any corrective slide is likely to find some support near the $2,855-2,850 area, below which the Gold price could slide further toward the $2,810-2,800 region. This is followed by the $2,773-2,772 horizontal resistance breakpoint, now turned support, which if broken might prompt some technical selling and pave the way for deeper losses.
Gold FAQs
Gold has played a key role in human’s history as it has been widely used as a store of value and medium of exchange. Currently, apart from its shine and usage for jewelry, the precious metal is widely seen as a safe-haven asset, meaning that it is considered a good investment during turbulent times. Gold is also widely seen as a hedge against inflation and against depreciating currencies as it doesn’t rely on any specific issuer or government.
Central banks are the biggest Gold holders. In their aim to support their currencies in turbulent times, central banks tend to diversify their reserves and buy Gold to improve the perceived strength of the economy and the currency. High Gold reserves can be a source of trust for a country’s solvency. Central banks added 1,136 tonnes of Gold worth around $70 billion to their reserves in 2022, according to data from the World Gold Council. This is the highest yearly purchase since records began. Central banks from emerging economies such as China, India and Turkey are quickly increasing their Gold reserves.
Gold has an inverse correlation with the US Dollar and US Treasuries, which are both major reserve and safe-haven assets. When the Dollar depreciates, Gold tends to rise, enabling investors and central banks to diversify their assets in turbulent times. Gold is also inversely correlated with risk assets. A rally in the stock market tends to weaken Gold price, while sell-offs in riskier markets tend to favor the precious metal.
The price can move due to a wide range of factors. Geopolitical instability or fears of a deep recession can quickly make Gold price escalate due to its safe-haven status. As a yield-less asset, Gold tends to rise with lower interest rates, while higher cost of money usually weighs down on the yellow metal. Still, most moves depend on how the US Dollar (USD) behaves as the asset is priced in dollars (XAU/USD). A strong Dollar tends to keep the price of Gold controlled, whereas a weaker Dollar is likely to push Gold prices up.
US-China Trade War FAQs
Generally speaking, a trade war is an economic conflict between two or more countries due to extreme protectionism on one end. It implies the creation of trade barriers, such as tariffs, which result in counter-barriers, escalating import costs, and hence the cost of living.
An economic conflict between the United States (US) and China began early in 2018, when President Donald Trump set trade barriers on China, claiming unfair commercial practices and intellectual property theft from the Asian giant. China took retaliatory action, imposing tariffs on multiple US goods, such as automobiles and soybeans. Tensions escalated until the two countries signed the US-China Phase One trade deal in January 2020. The agreement required structural reforms and other changes to China’s economic and trade regime and pretended to restore stability and trust between the two nations. However, the Coronavirus pandemic took the focus out of the conflict. Yet, it is worth mentioning that President Joe Biden, who took office after Trump, kept tariffs in place and even added some additional levies.
The return of Donald Trump to the White House as the 47th US President has sparked a fresh wave of tensions between the two countries. During the 2024 election campaign, Trump pledged to impose 60% tariffs on China once he returned to office, which he did on January 20, 2025. With Trump back, the US-China trade war is meant to resume where it was left, with tit-for-tat policies affecting the global economic landscape amid disruptions in global supply chains, resulting in a reduction in spending, particularly investment, and directly feeding into the Consumer Price Index inflation.
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